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Foundation report puts focus on Delaware’s high-tech sector

A new report that ranks the Wilmington metropolitan area 24th in the nation in creating new high-tech businesses should encourage Delaware to devote additional resources to helping these businesses grow, technology advocates say.

The report, “Tech Starts: High-Technology Business Formation and Job Creation in the United States,” issued last week by the Ewing Marion Kauffman Foundation, contrasted business and job creation dynamics in the entire U.S. private sector with the innovative high-tech sector —industries with a high share of employees in the fields of science, technology, engineering and math (STEM).

J. Michael Bowman and Daniel Freeman weigh in on Delaware’s ranking in the ‘Tech Starts’ report.

J. Michael Bowman and Daniel Freeman weigh in on Delaware’s ranking in the ‘Tech Starts’ report.

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Foundation report puts focus on Delaware’s high tech sector

In reviewing 30 years of U.S. Census Bureau data and 20 years of Dun & Bradstreet data, report author Ian Hathaway found that STEM businesses, especially those in the information and communications technology (ICT) sector, are growing rapidly while businesses in the rest of the economy have actually experienced net job losses. Also, the report stated, each job created in the high-tech sector eventually results in the creation of four more jobs in the local services sector.

In terms of economic development, this means that “smaller bets, placed smart, can make a bigger difference than trying to land whales” when trying to grow business in the state, said J. Michael Bowman, associate director of the Office of Economic Innovation and Partnerships at the University of Delaware.

“We need to find more and better ways to encourage high-tech entrepreneurship,” added Daniel Freeman, an associate professor of Marketing at UD and director of the Horn Program of Entrepreneurship.

One of those initiatives is Start It Up Delaware, which received a $250,000 grant earlier this year from the Delaware Economic Development Office (DEDO) to create what amounts to an entrepreneurial ecosystem for individuals seeking to launch their own businesses, primarily as graphic and website designers, applications developers and marketers. About 20 people are now paying monthly fees for desk space at Start It Up’s headquarters on Market Street in Wilmington, and more than 100 others have taken classes there, says Mona Parikh, who manages the operation.

“To me, it feels like there is a lot of [high-tech] activity going on in Delaware, but to know that somebody from the outside looking at us objectively could say there is growth going on, that is very satisfying,” Parikh said.

The Kauffman report places the greater Wilmington area (which includes all of New Castle County as well as Cecil County, Md., and Salem County, N.J. for this study) in good company. Ranking in the top ten were such noted high-tech havens as California’s Silicon Valley, Seattle, Denver, Cambridge, Mass., and Boulder, Colo. No Pennsylvania or New Jersey metro areas were ranked in the top 25, while Bethesda-Frederick-Rockville, Md., just northwest of Washington, D.C., was ranked 21st.

The study used a metric called “startup density,” which measures the concentration of high-tech or ICT startups in a region relative to the average for the entire United States. The Wilmington metro area received a 1.6 score, meaning that number of startups in the region divided by its population was 1.6 times the national startup density average for 2010. (For ICT startups alone, Wilmington’s score was even better, 1.8, or 16th on the list.) Overall, the study rated 384 metropolitan areas, including the Dover area, which received a 1.0 startup density score, the average for the United States in 2010.

According to the report, three key characteristics of areas with high scores are technology hubs with skilled workforces, a strong university community, and a defense or aerospace industry presence nearby. New Castle County has the workforce and the University of Delaware (and other schools) as assets, and the military research hub at Aberdeen, Md., less than a half-hour away, Bowman said.

Gov. Jack Markell expressed satisfaction with the study, saying “this report affirms that, in one of the fastest growing industries, Delaware is home to one of the best hubs for new companies to go into business.”

Startups, Markell said, “need access to capital, mentors and other resources. We’re committed to expanding our statewide initiatives to promote entrepreneurship to help turn great ideas into successful companies.”

“We’re pleased that we received this rating and we hope to be moving up,” said Bob Chadwick, executive vice president of the New Castle County Chamber of Commerce and director of the New Castle County Economic Development Council.

Both Bowman and Freeman suggested that the Kauffman Foundation study demonstrates the potential benefit of focusing more state resources on the development of high-tech startups, rather than larger traditional businesses, such as those in the banking and manufacturing sectors that have received loans and grants from DEDO during Markell’s administration.

Entrepreneur Lee Mikles, president of Start It Up Delaware, noted that “every business sector can make a case” for needing more state support in economic development but it is important to recognize that “tech jobs are weaving their way into every aspect of manufacturing and business.”

In all forms of business, he said, “technology is going to be the competitive difference that makes an enterprise more successful.”

As technology increasingly permeates business, Chadwick said, “the jobs that are being created are not in the tech sector but in the ‘tech-hyphen’ sector.”

Investments in high-tech startups are typically riskier than those in more traditional industries, but the Kauffman report shows that the long-term returns are better, Freeman and Bowman said.

Freeman noted, however, that the Markell administration’s $21.5 million in loans and grants to Fisker Automotive, which hoped to build hybrid electric cars at the former General Motors plant near Wilmington, did not pay off, and “has become a drag on political willingness to support high-tech startup activity, certainly on a big scale.”

Typically, Freeman said, “if you incentivized 100 startups and 80 of them failed, that would still be a pretty acceptable rate,” especially if the 20 successes created a significant number of jobs.

However, in a small state like Delaware, “if you have a small number of startups and you know a large percentage of them will fail, it’s hard to stomach incentivizing what you know will be a lot of failures,” he said.

Bowman noted, however, that startups that fail have a tendency to “fail fast,” so “you’re failing with only four or five people on the payroll,” a number far smaller than most businesses that seek economic support from the state.

Bowman and Freeman pointed to several tech startups that have had significant success.

QPS, which provides research services to clients in the biotech and pharmaceutical industries, started with two scientists in a small lab in the Delaware Technology Park in Newark, and now has 1,400 employees in 40 countries and more than $100 million in annual revenue, Bowman said.

Wilmington-based SevOne, which provides network and IT management, monitoring, and reporting services, has created more than 100 jobs in seven years, Freeman said.

And the Archer Group, the interactive marketing agency Mikles co-founded a decade ago, has grown from a handful of employees to more than 50.

“If you get one or two of those, it’s well worth the investment,” Freeman said, “but you need a high volume of startups to end with a few clear winners.”